Savings and credit organizations in Kenya


The background gives a brief history of the savings and credit cooperative societies, highlights its importance to the society and touches on the problems that have influenced its performance of its roles and finally on the possible solutions or causes of actions. This preambles the statement of the problem, the purpose, significance, scope and limitations of the study together with the research questions.


One of the basic principles of Cooperative Savings and Credit Movement is the belief in co-operation and mutual self help for the uplifting of members standards of living. Kussco(2006). Members with a common bond join hands to form those quasi-banks institutions. With finances mobilized through such joint efforts the savings and credit society members build up the capital which they can use through local arrangements to finance their own social as well as economic development.

The traditional form of cooperation involved working together on farms, hunting and gathering. All people have basic needs of food, shelter, security and belonging. People would invite neighbors to come and give a hand. Also people did not have money and resources, which enables individuals to employ people or machinery to do the work for them.

In any community cooperation usually exists in the form of associations of people who come together as a group driven by their social and economic needs in order to cope with their problems and improve their conditions of living MOCD (2006)

According to Odepo and Nyawinda ( 2004) , savings and credit cooperatives societies ( commonly referred to as SACCOs), accept monthly payments for shares from which, members may borrow an amount equivalent to two or three times their own savings if they can get other members to guarantee them. They say that growth in SACCOs in the last twenty years has been spectacular. According to statistics from Kenya Union Of Savings and Credit Cooperative societies (KUSCCO), the number of SACCOs rose from 630 in 1978 to 3,870 by the end of October 2002 while savings and share capital rose from Kshs. 375 million in 1978 to Kshs. 80billion by 2003. Credit outreach similarly recorded significantly, having risen from 357 million in 1978 to kshs. 70 billion by 2003. Saccos active members numbered over 1.5 million by 2002 having risen from 378,500 members in 1978. Their rapid growth indicate that they have filled a need which had not been made by the financial institutions. Of the Kshs. 110 billion in the current share capital and deposits held by cooperatives, the statistics show that Kshs. 90 billion has been lent out to customers. However, the recent statistics from the ministry of cooperative development and marketing shows the position as below

The internal management principles need to be enforced strongly to improve efficiency of collections, and even perhaps consider insuring the loans in case of demise of member loaned.

The Sacco movement has the capacity to propel the economic lives of the citizens if indeed it is well managed. Its principles of democratic management, voluntary membership and common bond give it the base to take its members to new heights. The movement has been a boon for this country and many people would not be where they are now were it not for the harvests of the opportunities sowed in the garden of the movement. It mobilizes savings and finance and penetrates to areas not valued by other financial institutions, while serving special needs of members. The prospects for the industry are so huge. By identifying the fact that the easiest source of funding is the locally mobilized savings, the saccos should come up with innovative ideas to encourage the members of the common bond to save, as a first step. Other sources of funds like the cooperative bank, which all the saccos have a stake in, should be considered exhaustively. Besides they should think outside the box and get organizations willing to empower members economically by allowing loans at a rate less than what saccos offer to its members. The saccos umbrella body- Kussco- has a fund to assist the member saccos when they are in need of the funds.

Saccos face numerous challenges that hinder the exploitation of their full potential. Mudibo(2005) raised concerns on the calibre of leaders who run saccos noting that since these are voluntary organizations, members can elect anybody they like, who may not necessarily have the skills to run a sacco. He suggested that before a member is elected, he should have certain number of shares so that he has something to loose if he mismanages the sacco. Non remittance and delayed remittance of cooperative dues by employers has led to inconveniences and loss of income by the societies. New rules have however provided stiff penalties for errant employers. Members are also at risk due to HIV/AIDS and ways to attract new members are required.

Ngumo (2005), in his article the cooperative movement in Kenya; the eagle that wont fly Nairobi, Kenya institute of management raises several unsettled issues affecting the saccos. First the government should decide on whether to control or facilitate the cooperatives. Cooperative roles should be re-emphasized. One member one vote should be questioned. Instead he suggests the policy of one share one vote. Still, ownership and control should be de-linked for good corporate governance. Then business strategies need further scrutiny before implementation. He concludes that it will be sad for Kenyans to compose a eulogy for the movement after all this time. He said; ‘We cannot milk a cow, refuse to feed it, cry that it was wonderful cow and blame God for its demise.’

According to National Micro and Small Enterprise (MSE) Baseline Survey (1999/2000), Kenya has a relatively well developed banking and formal financial sector. This consists of the Central Bank, 43 commercial banks, 16 non-bank financial institutions, 2 mortgage finance companies, 4 building societies , 8 developed financial institutions about 3870 cooperative savings and credit societies, 38 insurance companies, the Nairobi stock exchange and venture capital companies. The survey further indicates that nearly 89.6% of MSEs had never received credit and other financial services.

The unserved credit needs portrayed by the statistics in the table 1.2 in the background section above signifies a wealth of opportunities untapped by all the financial institutions. The proof of the existence of market implies that a lot needs to be done to raise what it takes to serve a market. The most basic need is the finance to lend in a discipline way. Voluntary savings from members is therefore imperative. Saccos abilities to improve their members’ wealth is determined by a number of factors, among them is the funding levels due to members’ marginal propensity to save, contributions; remittance by the employers, legal and regulatory framework, internal management principles and practices (e.g customer service, marketing, dividend / interest payment etc) amongst other factors. These factors’ level of influence on saccos ability to perform captured the attention of the researcher. It was the intention of the researcher to examine them and possibly recommend on the best way to mitigate the underlying challenges and take advantage of the available opportunities by exploiting existing strengths.

Voluntary deposits / savings as a source of commercial finance for micro credit institution have generated a lot of interest and debate in recent years. Locally mobilized voluntary savings is potentially the largest and the most immediately available source of finance for some micro credit institutions, most of all the saccos. Bearing this in mind, one is left to wonder what is hindering the saccos from prosperity, given the access to its resources and the wealth of its opportunities. The purpose of this research is to broaden the discussion of what, when, why and how a sacco should use its resources, get the right framework, apply effective policies for improvement of the wealth of its members. Getting these elements right is a crucial part of meeting the demand for the unmet credit needs. The researcher will also seek to bridge the gap that exist between Saccos that have exemplary performance in their services to members and excellent returns and some others which barely afford to offer loans, leave alone dividends.

According to Armstrong, performance is often defined in output terms – the achievement of quantified objectives. But performance is a matter not only of what people achieve but how they achieve it. High performance result from appropriate behaviour, especially discretionary behaviour, and the effective use of the required knowledge, skills and competencies.


Quite a number of Saccos e.g TENA sacco, have a long string of pending loan applications from members SACCO star ( 2006) . Some saccos pay out little or no dividends/ interests on members savings. Some others still have a low loan multiplier and / or limited concurrent loans compared to some well performing counterparts e.g Stima Sacco, Sacco star,(2006)- which has even started ATM services for FOSA customers and manages to advance more that three times the members’ deposits, can give up to four concurrent loans without closing any applications for the year and gives loans almost immediately it is applied for by the member , (mwaura (2004). Among the major problems hindering this is the unavailability of much needed cash to lend, when it is required. This therefore causes a mismatch in the availability of funds and the demand for loans. Other reasons could be poor investment decisions or lack of investment opportunities or delayed cash flow from employers/ members among others.

Rutherford (1999) wrote that funding these large sums of money is the main management problem. The only reliable and sustainable way is to build them from savings. Saving- making a choice not to consume- is thus the fundamental and unavoidable first step in money management, without which financial services cannot operate. The poor themselves recognize the need to build savings into lump sums and contrary to the popular belief, the poor want to save and try to save, and all poor people except those who are entirely outside the cash economy can save something, no matter how small, When poor people do not save, it is for luck of opportunity rather for lack of understanding or of will.

Most of the saccos have succeeded in mobilization of savings from members. Inspite of this, still they have a huge backlog in terms of loans advanced to members (Sacco star, 2005). Furthermore, most of the saccos pay little dividends/interests on deposits or none at all, in-spite of trading with the deposits/savings. It was therefore the intention of the researcher to seek to establish the determinants of saccos capabilities to improve its members’ well being.


Main Objective

The main purpose of this study was to investigate and refine our understanding of the major factors that determine the performance of saccos to enable them maximize their members wealth.

Specific objective

Specifically, the study sought:

  1. To find out the extend to which the nature of business/ check off system affects performance of SACCOs
  2. To establish the relationship between management practices and performance of SACCOs
  3. To examine the level of education and training of general members, committee members & staff and their effects on performance of SACCOs
  4. To determine if long term investment affects performance of SACCOs


  1. To what extend does the nature of business/ check off system affect performance of SACCOs?
  2. Do management practices affect performance of SACCOs?
  3. Is education and training of general members, committee members & staff a factor that affects the performance of SACCOs?
  4. Does long term investment affect the performance of SACCOs?


This study is aimed at developing an understanding on major factors determining the accessibility to funds to process and dispense all loan requisitions in time by saccos in Kenya. It is seeking to examine and underscore the salient principles that have a bearing in the success in similar or related areas of focus, and hence suggest ways and means of overcoming failure.

The study is aimed at benefiting, among others, the management teams. These are the people entrusted by the members to take care of their interests in saccos. They will study to understand and improve on policy setting and implementation for overall sustainability of the sector. The entire sacco membership will also get enlightened. The members of the common bond will appreciate their role in sustaining their welfare through sacco as a vehicle. They will be more willing to take a center role instead of quiting when they feel their interests are not being taken care of by the people they entrusted them with. It will also benefit the sacco staff/secretariate; these are the people who get their daily bread from the sacco. They will understand their role in the growth of the organization, hence acting to secure their source of livelihood.

It will also be of good use to the government department in charge of cooperatives. The report will bring to light issues requiring framework and only them can attend to for the overall sustainability of the sacco industry. Finally other researchers in this area will find this useful. They will get recommendations for further research from this study. The beneficiaries will have access to the information on the findings from the compiled report. The final report will be available in selected major libraries, organized groups, especially the respondents will get a copy of the report on the findings.


This study’s scope was the saccos based in Eldoret. The researcher selected a suitable sample from the population by purposive convenience sampling. According to the statistics from MOCD/M, there are about 10 such saccos within Eldoret town. About 40 % of the population (4 saccos) were covered by the study. The study targeted the members of the central management committee (CMC) in the selected SACCOs.


Introduction to literature review

This section contains literature that has been reviewed and continues to be reviewed relating to the problem. Literature review involves locating, reading and evaluating reports of previous studies, observations and opinions relating to the planned study. It therefore enables the researcher to know what has been done in the particular field of study, makes one aware of what has been made and what challenges remain, and gives suggestions on the variables and procedures that could be used. Literature review logically leads to objectives on the study.

Past studies in the area

Background information

According to Mwaura (2005) sessional paper No. 4 of 1987 on renewed growth through the cooperative movement highlighted the significance of the movement in national development. By this time there were 3500 registered cooperatives with more than 2million members and an annual turnover greater than 6billion. The paper noted that one in every two Kenyans derived its livelihood from the cooperative either directly or indirectly. The cooperative movement in Kenya is reputed to be the most advanced in the African continent. The Kenya Nordic agreement of 1967led to the establishment of the Cooperative college of Kenya at Lang’ata, which is the main training ground for both ministry staff and the movement employees.

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According to MOCD (2002) the first Savings and credit Cooperatives in Kenya were started in the sixties. The Government annual economic survey shows that as at December 2002 there were more than 2,400 active SACCOS with membership in excess of 1.5 million people. Share capital stood at Kshs. 65 billion while outstanding loans were Kshs. 59 billion.. The structure of the cooperative movement in Kenya comprises of four tiers. These include the primary societies, secondary cooperatives, tertiary cooperatives and nationwide cooperatives.

The Kenya Federal of Cooperatives (KNFC) is the only apex society in the movement. It was formed with an objective of promoting, developing, guiding, assisting and upholding ideas of the cooperative principles. KNFC is the link between cooperatives in Kenya and the international cooperative alliance. Of special mention here is the African Confederation of Cooperative Savings and Credit Associations (ACCOSCA), which is registered under the Societies Act, Chapter 108 of the laws of Kenya. Its area of operation is Africa and the adjacent islands. Its head-quarters is in Nairobi. It has twenty five affiliated organizations. It is affiliated to the International Cooperative Alliance through its members in the world council of Credit Unions (WOCCU).

According to the cooperative Societies Act (Cap 490), persons desirous of forming a cooperative society must fill the prescribed form from the commissioner for cooperatives. It requires that at least ten members will sign the form, though for savings and credit the commissioner has been asked for more people. The form requires that the society makes its by-laws. For ease of convenience the commissioner has prepared model by-laws for the cooperative societies. The societies are nevertheless free to change these or come up with their own by-laws. The by-laws must detail the following; the name of the society, objects of the society, purposes to which its funds may be applied, disposal of surplus funds, qualifications for membership and terms and conditions of admission of members.

For savings and credit cooperatives, the following are also includes, the rate of interest, the maximum amount loan-able, extension, renewal and recovery of loans and the consequences of default in the repayment of any sums due. On receipt of the application form the office of the commissioner will register the cooperative society on the advice of the cooperative officer in charge of the area of operation.

Chapter 490 provides that no companies registered under the company’s Act or any un-incorporated body of persons shall become a member of a registered society except with the written permission of the commissioner. It also provides that no person can join more than one cooperative society with unlimited liability. A member may nevertheless be allowed to join two or more cooperatives with limited liability if the two are in different areas of operation. A cooperative society just like a company, may be registered with or without limited liability. The commissioner has power to refuse to register a cooperative society. Nevertheless, the refusal must be given to the applicants in writing. Applicants can appeal to the minister for cooperative developments and finally to the high court. The commissioner may register the cooperative either provisionally or fully. A provision registration is given where some requirements for registration have not been met. The applicants are given a period of one year to satisfy all conditions. A provisionally registered cooperative society may act as a fully registered in all ways. Upon registration such a cooperative society is deemed to have been registered on the date of the provisional registration. Upon registration a society becomes a body of corporate.

According to Ouma(1980), the term “cooperative” in its widest sense simply means working together. In this context cooperation is as old as mankind and exists wherever the human family is found. Indeed such cooperation exists among animals, insects, bees and ants. Thus cooperation generally means working together for a common purpose. Thus group effort through traditional form of cooperation may be traced in all communities of the world. However its narrow sense as a movement, it means an association of people whose purpose for group work yields good results not only for the members but to the community in general and even to the humanity at large. Cooperative is a business organization by profit, but rather the result of mutual association whose objective is equitable economic betterment of man and the society in which he lives.

According to the MOCD, cooperatives are regulated by a set of principals. These principles were formulated by a group of people who lived in a village in England known as Rochdale, and they are therefore referred to as Rochdale pioneers. They formed the first successful cooperative society in 1884. This society which was a consumer cooperative society was formed in 1844 when Britain was undergoing industrial revolution. As a result of the revolution, a lot of people lost their jobs in the factories as machines were introduced to replace them. In addition to this there was general lack of credit and supply of essential commodities like salt, sugar, flour and cooking fat. Businessmen also took advantage of this situation and started offering impure products at high prices.

It is against this background that Rochdale Pioneers decided to draw up some sort of principles which would guide their operation as cooperative society. These principles were intended for the regulation of cooperative society as indicated by the great stress on the sale of pure products and the sale of goods for cash only. It was therefore found necessary to formulate the principles for adoption by other types of cooperatives.

The International Cooperative Alliance (ICA) Commission of 1966 adopted the following principles which are genuine for the running of a genuine cooperative society:- Open and voluntary membership, democratic administration (one man, one vote), limited interest on share capital, payments of dividends and bonuses to members, promotion of education and cooperation with other cooperatives at local national and international levels.

According to Ouma (1980), the traditional cooperatives have been in existence in Kenya, as it has been elsewhere, from time immemorial. Examples of such cooperative practices are to be found in Kenya. The group association is normally based on lineage according to the natural geographic environment in which the members of the group are born. This is usually based on clan or people who live within the same village. It can be stated with fair amount of certainty that the traditional forms of cooperation do generally speaking, form the basis for the establishment of modern cooperative organizations. There is for instance in Luo, Saga whereby a group of people do ploughing, weeding or harvest for each member of the group in turn. In Kwath, members of the group look after their cattle together for three or more days consecutively, in turn. In Kikuyu there is what is called ngwatio (Mwethya in Kamba) whereby members of the group get together to build houses for themselves, each member of the group breinging what is required for the construction e.g. grass and poles. When the first house is completed then the members start on the next one.

In Kisii, there is what is called obituary wherby men go on a job hunting exercise, and when they kill an animal, they will either divide it or take it home (village) where it mis cooked and eaten communally by all the villagers.

Among the Kalenjin there is the practice of Kokwet wherby a group of people would go out to harvest or weed the garden of their members in turn. The Kalenjin also have Loget whereby the men go in a joint effort to kill animals for food.

According to Ouma(1980), practically all the ethnic groups in this country, whether small or big, has since time immemorial practiced mutual association in order to satisfy their needs socially, economically or otherwise. It is also necessary to point out that in the traditional forms of cooperatives, in contrast to the modern cooperatives, members had a great sense of commitment and belonging.. They had mutual trust and were voluntarily involved in their activities and affairs.. It is of course not possible and it may not be expected that with the development of cosmopolitan populations consisting of different ethnic groups and tribes that members can still hold together without some form of regulations. Hence the necessity to resort to legal reinforcement and education in order to develop efficient cooperative organizations.

Although these associations of group effort could be deemed self help which is infect a for of cooperative , it is nevertheless true to say that the modern cooperative movement, born in Kenya during the beginning of twentieth century owed much of the cooperative idea to these earlier practices. It is also true that the modern cooperative associations in this country took a different approach and mainly because of expediency. Its founders the British settlers- merely wanted to use it as a cheap means of business for easy profit making. They never spontaneously involved the indigenous people who already were familiar with cooperative effort.

The early settlers were beset by very many problems as regards their agricultural activities. For instance prices for Agricultural products were very low, transport of the agricultural inputs and outputs to the markets by each individual settler were classical nightmares. Therefore this new system of farming with its large scale production caused the needs for associations by the few European farmers who undoubtedly had conceived the cooperative idea from the British cooperative movement back home. It will of course be recalled that the formal and successful cooperative organisations started in Britain in 1844.

In 1908, they resolved to join together at a place called Lumbwa and formed Lumbwa cooperative Society Ltd. Although not registered as such under any cooperative Societies’ Act, it is deemed to be one of the modern cooperatives in Kenya. The main objective was to purchase merchandise; i.e. fertilizers, chemical seeds, and other agricultural inputs through collective effort, and to market their produce collectively thus taking advantage of the economy of scale. It would appear quite clear at this point that cooperatives in Kenya did not start as a “poor man’s defensive weapon” against the exploitation by the middlemen, as it had started in Europe and elsewhere. It was on the contrary an easier means to enable the white settlers to receive high returns from their agricultural produce. Thus it was rather an economic necessity for the well to do and not the ordinary man with little or no means at all.

It will be remembered that during this time, there was no cooperative societies’ ordinance to regulate and to assist the management of these cooperative efforts in Kenya. It is also not clear whether or not Lumbwa Cooperative society ltd was registered even under the companies Act, otherwise calling it a “co-operative society” was misleading. However one thing remains certain, and that is that the settlers wanted to maximize their profits by trading under the pretext of a co-operative organisation, thereby enjoying its privileges.

According to Ouma (1980) many self help groups, most of which were very small and un-economic, were started all over the country. But these were not economically viable and consequently had to be amalgamated into larger economic units. These were for instance Kenya farmers’ association (co-operatives), Kenya planters co-operative union, Kenya cooperative creameries and Horticultural cooperative union. It is a fact that these institutions formed the backbone and the base for formal cooperative movement in this country. These initial cooperative ventures in Kenya were unfortunately not quite in the spirit of the Rochdale Pioneer Cooperative Society. They never for example, observed the principle of membership, for no African could participate in it until later. The need to form formal cooperative organisations arose when some African peasant farmers realized that they were being exploited, especially by the Asian traders who were paying very low prices for their agricultural produce.

As early as in the 1930’s there were attempts to form cooperatives by the indigenous people of Kenya, in spite of lack of proper guidance. Of these early attempts two examples can be mentioned here, The Taita vegetable company and the Kisii coffee Growers cooperative. The farmers had 239 members and bought 3 lorries at the cost of $1170 out of the profits made from the operations. The group was producing, grading, transporting and selling on the mombasa market over 900,000Lbs of vegetables a year and the growers received over $4,500 out of a gross selling price of $ 6300. This was indeed too substantial an enterprise to be left without a legal basis. It was later registered as cooperative society. The Kisii coffee growers Association which was able to raise from the sale of its coffee a sum of $2470 of which $1240 was paid out to the 251 members who had cultivated only 159 acres, but had already accumulated a surplus of $1065.

In 1994, the British Colonial Office in London appointed Mr. W.K.H Campbell to come to investigate the possibilities of African participation in the cooperative organisations. He carried out his investigations by touring and visiting many towns and districts in the republic of Kenya and talking to the people. After all his investigations Mr. Campbell submitted his recommendations that subject to availability of capable staff attempts to organise cooperatives were worth while. It was also during this time that the first African – Mr. Eliud Mathu was nominated to the legislative assembly, as the Kenya parliament was called then. He demanded in parliament and such people as Ex chief Koinange from outside, that the Government should come out openly to encourage African participation in the cooperative movement.

It was as a result of Campbell’s recommendation that the cooperative societies (Registration) Amendment, Ordinance of 1932 was repealed and the cooperative societies Ordinance of 1945 was enacted under Cap. 287. It was as a result of this new ordinance that the department of cooperatives was created, although it was placed under different ministries at various times.

Consequent to the establishment of the department, a registrar ( now called commissioner for cooperative Development) was appointed and together with his staff was responsible for registration and promotion of cooperative societies in the country. The 1945 cooperative societies ordinance further gave the registrar certain powers over cooperative societies, for example refusal to register a cooperative society, cancellation of certificate of registration, to audit society’s books of accounts, authority to inspect books of society, authority to settle disputes in cooperatives only to mention but a few examples.

The new cooperative societies ordinance thus subsequently enabled the Government to establish the department of cooperative development. The department was charged with the responsibility of promoting, controlling and educating the members as well as the public on the need and usefulness of cooperative efforts, with particular emphasis on the rural areas. The Registrar of cooperative Societies as the head of cooperative department was designed then and was given staff in ranks of Assistant Registrars and cooperative inspectors, though very limited in number. The assistant registrars worked very closely with the department of Agriculture, in organizing cooperatives which served as the nucleus for the introduction and expansion of various types of cooperatives such as Pyrethrum, Maize, vegetables, dairy, cotton, consumer thrifts and others.

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According to Ouma (1980), traditionally, people of different nations used barter methods of exchange. That is the exchange of goods for goods. It therefore requires a change of attitude and new outlook towards life in order to be able to accommodate and apply this new mode of economy usefully and effectively. This new approach can only succeed if people cultivate “money-saving” attitude in order to allow for its accumulation.

In 1964, the first cooperative Savings and credit Society based on the credit union National Association (CUNA) pattern in USA, but under “employment bond” was registered. The scheme proved popular because, while it encouraged members to save regularly, the savings itself constituted a pool from which members could obtains loans for emergency and productive purposes, at 1% interest per month on the outstanding balances.

In 1945, the 4th African conference for the mobilization of local savings, sponsored jointly by credit union National association and the Ministry of Cooperatives and marketing was held at the Kenya Institute of Administration. The resolutions passed at the conference resulted in great efforts being made to encourage the type of salary-workers cooperatives! One of the results of these resolutions was the formation of “African Cooperative” Savings and Credit Association. By the end of 1967 there were 67 such Savings and Cooperatives in Kenya, with a membership of about 3,000 and a total Savings of nearly shs. 1.6 million. In 1980, the total number of registered cooperative savings and credit Societies was over 600 with total savings amounting to nearly shs. 400million.

Mention needs to be made of the world council of credit union (WOCCU) and the African Cooperative Savings and Credit Associations (ACOSCA), both of which have greatly assisted with funds which have in-fact enabled the national Credit Association namely, Kenya Union of savings and credit Cooperative (KUSCCO to be established) The functions of KUSCCO include, member education, centralization of accounting, insurance etc. Since its inception in 1973 KUSCCO has continued to make good progress for the fulfilment of these objectives.

Some savings and credit Societies are countrywide in nature. These include certain ministries and other industrial concerns, and corporations whose employees are scattered all over the country. Examples of these could be drawn from Harambee Savings and credit (office of the president), ukulima savings and credit (ministry of Agriculture), Esso savings and credit (Esso company), Sheloyee Savings and (Shell company). These have branches in various parts of the country in order to enable their to keep abreast with the activities of the organization.

It should be warned, however, that unless precaution is taken, most of these societies might run out of control and end up in chaos. There have been reports of cases where for instance, some committee members have granted huge loans or refinance to themselves. In other cases, some members are given big loans, when such members are not qualified for even small loans. And in other cases corruption, nepotism and tribalism are indeed prevalent. Yet in some cases, employees collaborate with other “people” to draw cheques in their names and even destroy loan applications and deduction forms for some members who are known to them, so that no loan may be recovered from such loanees.

The duty of the ministry of cooperative development is to oversee, guide and direct the whole cooperative movement. This is carried out by the staff headed by a commissioner for cooperative Development, who has a wide range of powers enacted in the cooperative Societies Act. There is a representative of the commissioner for cooperatives at each administrative level – i.e. at the province, district and division levels. The cooperative movement thus gets to be under a bureaucratic control and therefore can not be able to operate under a fully organizational autonomy, nor generally be able fully make its own decisions. However it must be emphasised that if great care is not taken such interventions by MOCD can result in jeopardizing the whole movement and bringing into existence a mass of societies which a government-inspired and which may be resented by the very people they are supposed to serve.

For a start cooperative societies ordinance of 1931 and subsequently the one of 1932 which was amended in 1945 was useful, but as time went by, even the 1945 was found to be in-adequate. It had a lot of loopholes which made it possible for a few and unscrupulous and dishonest members of cooperatives to exploit the organizations. Indeed most of the cooperative societies which were registered before the new cooperative societies Act 1966 came into force, suffered heavy financial losses due to mismanagement and misappropriation of funds.

The Act covers fairly and comprehensively all the relevant fields. These include interpretation, registration, duties and privileges of registered cooperative societies, property and funds of registered societies, charge by registered societies, dissolution, settlement of disputes. There are also general provisions which include appeals to the minister for cooperative development or to the high court and provisions for miscellaneous powers of the commissioner for cooperative development.

The cooperative rules of 1969, made under the cooperative Societies Act were made by the minister for cooperative development under the powers conferred upon him by section 84 of the cooperative societies Act, 1966. This rule gives the details of procedures to be followed and various tasks to be performed with regard to the provision of the cooperative societies. They for instance stipulate what books of accounts and records are to be maintained by cooperatives, when to convene general meetings and many other matters.

The cooperative Societies (Amendment) Act, 2004 section 35 provides amongst other things that:

  1. Where an employer of a person who is a member of a cooperative society has under the instructions of the employee, made a deduction from the employee’s emoluments for remittance to the cooperative society concerned, but fails but fails to remit the deductions after seven days within which the deductions was made, the employer shall be liable to pay the sum deducted together with compound interest thereon at a rate of not less than 5% per month.
  2. The commissioner may on behalf of the society, institute legal proceedings in court for recovery of the sum owing under subjection (1) without prejudice to any other mode of recovery and such debt shall be a civil debt recoverable summarily.
  3. The commissioner may by written notice, appoint any person, bank or institution to be an agent of the society for the purposes of collection and recovery of a debt owed to the society.

The cooperative societies’ rules 2004 have provisions on;

  1. Investment in non-core businesses

50. No cooperative society shall invest its funds in non-core business, except with the approval of a commissioner and by the general meeting through a special resolution.

  1. Investment of societies funds

36. Where the society invests in real estate other than for its own accommodation, it shall not hold more than 20% of the equity in the investment i.e. expend a sum expend a sum of 20% of its share capital in such venture.


“Special resolution” means a resolution passed by two thirds of the members present and voting at a general meeting of a society.


According to Njihia (2005), to perform is to do a piece of work to the community. It is to act in an official way, to work or to function. Performance is an action or achievement considered in relation to how successful it is. It is the ability to operate efficiently or to react quickly.

According to Armstrong (2006), performance is often defined simply in output terms- the achievement of quantified objectives. But performance is a matter not only of what people achieve but how they achieve it. The oxford English dictionary confirms this by including the phrase ” carrying out” in its definition of performance. The accomplishment, execution, working out, carrying out of anything ordered or undertaken.” High performance results from appropriate behaviour, and the effective use of the required knowledge, skills and competencies.

Performance means both behaviours and results. Behaviours emulates from the performer and transforms performance from abstraction to action. Not just the instruments for results, behaviours are also outcomes in their own right- the product of mental and physical effort applied to tasks – and can be judged apart from results.

This definition of performance leads to the conclusion that when managing performance both inputs (behaviour) and outputs (results) need to be considered.

According to Johnson & Scholes (2007), many managers find a process for developing a useful set of performance indicators for their organizations difficult. One reason for this is that many indicators give a useful but only partial view of the overall picture. Also some indicators are qualitative in nature, whilst the hard quantitative end of assessing performance has been dominated by financial analysis. In an attempt to cope with this very heterogeneous situation, balanced score cards have been used as a way of identifying a useful, but varied set of key measures. Balanced score cards combine both qualitative and quantitative measures, acknowledge expectations of different stakeholders and relate an assessment of performance to choice of strategy.

According to Pearce and Robinson (2007), operational controls provide post action evaluation and controls over short periods from one month to one year. To be effective, operational controls must take four steps common to all post action controls; set standards of performance, measure actual performance, identify deviations from standards and initiate corrective actions.

It is not a question of simply considering the achievements of targets as used to happen in “management by objectives” schemes. Competency factors need to be included in the process. This is the so called “mixed model” of performance management, which covers the achievements of expected levels of competence as well as objective setting and review.

According to Mwaura,(2005) lack of credit analysis, credit follow-ups as well as hostile lending are the key factors that contribute to poor performance in loan lending by SACCO societies in Kenya.

Management Practices

According to Noebere (2000) all studies of business failure points to poor management as the main cause. The success of a firm is measured by its profitability which depends on the efficiency of its management.

According to Kibera (1996), management can be defined as a set of activities directed at the efficient and effective utilization of resources in pursuit of one or more objectives. The resources are usually people, machines, materials, time and managerial know-how.

A need to embrace good corporate governance and the by-laws need to be reviewed to provide for minimum qualification standards for both the board members and delegates for efficient and sound management (KUSCCO 2003)

According to Ouma(1980), a structure for the organization of cooperatives has evolved over the years since Kenya achieved its independence in 1963. At the lower end we have primary cooperative units, which are composed of at least 12 individual persons. Primary cooperative societies are governed by the cooperative societies Act.

However the Act does not provide a clear definition of a cooperative society, apart from saying that it is a society registered under the Act. From the primary societies there is some kind of “hierarchical” arrangement, going unto the apex society at the top. A primary society is defined as a society where membership is restricted to individual persons. It is managed by a management committee elected at the AGM. The management committee generally employs a full time manager to assist in the day-to-day running and operation of the society.

The primary societies are in turn organised to form what is called cooperative “unions” or similar to secondary cooperative societies. This cover a much larger and wider administrative area. The membership to a union is restricted to cooperative societies. At least two cooperative societies may form a union. Such a union normally operates on a wider area. These cooperative unions serve the primary societies as service agencies. For example, they provide societies with credit required to pay the growers in advance for their agricultural produce and with any other services that they might require. Cooperative unions tend to operate on a district basis, hence they are usually called “District Cooperative Unions”. They are managed by an executive committee who are elected from the primary societies. They are also served by a manager- or secretary/ manager assisted by staff of a considerable size. These unions in turn form an apex- a national cooperative body such as KNFC, whose role for the most part is advisory.

According to Sambu (2006), Mudibo (2005) raised concern on the calibre of leaders who run SACCOs. Since they are voluntary organizations, members can elect anybody they like, who may not necessarily have the skills to run a SACCO. To address this he further pointed out that SACCO members are required through their by-laws to provide for minimum qualifications for their managers.

The duty of the ministry of cooperative development is to oversee, guide and direct the whole cooperative movement. This is carried out by a staff headed by a commissioner for cooperative development, who has a wide range of powers enacted in the cooperative societies Act. There is a representative of the commissioner for the cooperatives at each administrative level i.e. at the province, district and division levels. The cooperative movement thus get to be under a bureaucratic control and therefore cannot be able to operate with full autonomy. There are also some nation wide cooperative organisations which fall within and form part of the total structural framework. These are Kenya Farmers Association (Cooperative), Horticultural Cooperative Union, Kenya Cooperative creameries, Kenya Planters Cooperative Union, Cooperative Bank of Kenya and Kenya Union of Savings and Credit Cooperatives.

The management comprises of the CEO and the same management team with the primary responsibility of ensuring performance. The major challenge addressed by corporate governance is how to grant managers discretionary power over the conduct of business while at the same time holding them accountable for the use of that power. Balancing of the two is essential to ensure that decisions made by the management are in long term interests of the shareholders. Specific management practices have been found to improve corporate performance;- three dimensional strategy comprise exploration of new horizons, selectivity and drive, making wisdom contagious by empowering independence, interaction and communication among employees, focussing on group performance rather than individual performance, external processes which include benchmarking, systems for feedback both from suppliers and customers and continuous innovation based on internal and external evaluation.

According to Cole (2004), there is no generally accepted definition of “Management” as an activity, although the classical definition is still held to be that of Henri Fayol. His general statement about management is as follows: ” To manage is to forecast and plan, to organize, to command, to coordinate and to control. Management is a social process. The process consists of planning, control, coordination and motivation. Managing is an operational process initially best dissected by analysing the managerial functions. The five essential managerial functions are: Planning, Organizing, Staffing, Directing and controlling (Koontz and O’Donnell 1984)

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Five areas of management constitutes the essence of proactive performance in our chaotic world; an obsession with responsiveness to customers, constant innovation to all areas of the firm, partnership – the whole participation of and gain sharing with all people connected with the organization, leadership that loves change (instead of fighting it), and in stills and shares an inspiring vision and control by means of simple support systems aimed at measuring the “right staff” for today’s environment.

Basically, the above definitions are saying that “management” is a process that enables organizations to set and achieve their objectives by planning, organizing, staffing, directing and controlling their resources, including gaining the commitment of their employees (motivation).

According to Mwaura (2005), actions of top management affect performance. He also recommended that members, when electing office bearers, including delegates, should ensure that they elect trustworthy persons. Success and hence performance depends on the calibre of the officials that they elect.

Corporate governance seeks to find appropriate mechanisms for governing relationships for constituent groups with the company so as to generate a long term value. It also seeks to reduce conflict of interests among the stakeholders by making sure that right people make the decisions. Corporate governance is to create and implement internal organisation of the company and define more closely and represent more pressing interests to which the management should respond and goals towards which they should strive. Therefore it implies that corporate power is exercised in the best interest of the society.

The focus of corporate governance is on the systems by which companies are directed and controlled. Corporate governance is the process by which organisations are directed, controlled and held accountable. Corporate governance is at the heart of corporate success and it can have a significant influence on the country’s development.

Effective corporate governance will ensure long-term strategic objectives and plans are established and that proper management structure is in place to achieve those objectives while at the same time making sure that the structure functions to maintain the company’s integrity, reputation and accountability to its relevant constituencies. The right systems of checks and balances should be on the basis of merit or any corporate governance system.

Shareholders ought to appoint directors and auditors and satisfy themselves that the appropriate governance structure is in place. The shareholders will also ensure that only reliable persons with competence are elected or appointed as directors. They can also change the composition of the board.

Board of directors are the link between the people who provide capital and those who use the capital to create wealth. Their primary roles are:

  1. To monitor and influence the performance of the management on behalf of the shareholders in an informed manner.
  2. They are concerned with the governance of the company and setting the company’s strategic aims, policies and direction.
  3. Providing leadership
  4. Supervising the management of the business
  5. Creating momentum, price movement, improvement and direction
  6. Reporting to shareholders on their stewardship; i.e. since the beginning of the year what have they done.
  7. Representing the interests of the shareholders and those of the society

The composition of the board should be adjusted to introduce checks and balances in corporate management, basically done through:

  1. Inter-locking directorship- Directors being directors of various companies.
  2. Introduce staggered boards – ( some people who were in previous boards continue)
  3. Independent outside directors – ( who would come for meetings and policies only)

The auditors provide the shareholders with an external and objective check on the director’s financial statements which form the basis of reports to the shareholder.

Education & training

According to Armstrong (2006), training is the use of systematic and planned instruction activities to promote learning. The approach can be summarized in the phrase “learner based training”. It involves the use of formal processes to impact knowledge and help people to acquire the skill necessary for them to perform their jobs satisfactorily.

Learning is the process by which a person acquires and develops new knowledge, skills, capabilities and attitudes. “Learning has happened when people can demonstrate that they know something that they did not know before (insights, realizations as well as facts) and when they can do something they would not do before (skills)”

Development has been defined as “Learning experiences of any kind, whereby individual and groups acquire enhanced knowledge, skills, values or behaviours. Its outcomes unfold through time, rather than immediately, and they tend to be long-lasting.”

According to Ouma (1990), knowledge has been described generally as the key to success for any dynamic business enterprise. Education and training help people to acquire knowledge and to develop skills which enables them to implement decisions effectively. In common with all business enterprises, cooperative business requires specific education and training for those who wish to operate it. It was in the light of this necessity that the pioneers of the modern cooperative movement adopted cooperative education. The successful pioneers were the members of Rochdale consumer cooperative society, in England in 1844. The men of Rochdale and other subsequent groups, realized that it was through education and training, that all related cooperative principles as well as other business related knowledge would be assimilated.

Cooperative education and training can generally be acquired through formal and informal forums. Such forums would include :- Lectures, seminars, conferences, newsletters/ magazines, members open days, radio, TV, press, tours and visits. It is important that these forums be arranged to suit different groups viz, members, elected officials, committee/ board members, appointed officials (staff) and the general public.

It is also important therefore that cooperatives education and trainings should be taken very seriously if SACCOs are to compete side by side with other business organisations and be able to fulfil members’ aspirations. Improvement and standardization of training and education in the cooperative movement has been emphasized in every development plan since independence (Kamau 2006).

For the purpose of cooperation, broadly, education includes academic education of more than one kind. It should include both what people learn and how they learn it. Every phase of experience which adds to people knowledge, develops their faculties and skills, widens their outlook, train them to work harmoniously and effectively with their fellows. The cooperative education and training aim at ensuring that members of cooperative societies, including cooperative officials, employees and the general public are well informed about cooperative affairs.

The programme for cooperative education and training should include education and training on cooperative principles, business methods and general management of cooperatives, to all who are involved and concerned with the promotion, supervision, guidance and management of cooperatives. Those who are engaged in cooperative practice should participate in the process of education and re-education. These are the members, office holders, who include the members elected representatives or professionals, employed by the cooperatives. The ministry of cooperative development has continued to intensify programmes on cooperative education and training. Today the teaching of cooperation is included in the curriculum at the primary, secondary and at the university levels.

The Government established cooperative college with the assistance from Norway, Denmark and Sweden. Cooperative college is in the process of being elevated to the status of constituent of the university of Nairobi. Most SACCOs lack professional staff. They should therefore train their staff to gain the proper skills and cooperative concepts. Qualifications of committee members are never considered during elections. Some of them are therefore not knowledgeable in cooperatives. There is also no provision for induction after elections. There is also no provision for basic qualifications of committee members.

According to Muchemi(2005), customers should be enlightened on SACCO operations and on investment opportunities available. Training sessions are also used as an opportunity to advertise and inform the customers about the services offered by their respective SACCOs. She recommended that cooperative education meetings should be conducted more regularly than was being currently done, and customers be issued with newsletters, pamphlets and printouts. Intensive and regular education to customers and to staff should be increased.

According to Mbue (2006), SACCOs should educate the members, staff and committee members on the affairs of cooperative movement, their rights and obligations, the legal framework, business ideas, good governance, leadership and investment among others. He also found out that the general members were trained by facilitators from the ministry of cooperatives, KUSCCO and CIS officials, the committee and staff members. The Annual General Meetings and Special General meetings were also forums for exchanging ideas, where the management normally gave annual financial reports, the budgets for the following year, which had to be approved in the meetings. The rate of dividends is approved as well. The major capital projects are also approved as well as the borrowing power.

He also found out that staff courses are organized monthly by KUSCCO, Cooperative College, Strathmore University and any other private consulting firms, accounting colleges and computer training institutions. Committee members similarly undertake short courses and seminars. These are residential or in-house. The same facilitators for staff are engaged to educate the committee members. Tours and visits both locally and internationally are often conducted to both staff and committee members. These tours are organized by KUSCCO. They are intended for exchange programmes to share experience with other cooperatives worldwide.

According to MOCD (1976), it is felt generally that a responsible committee can only be found from a well informed membership, and that efficient management can only be achieved by qualified personnel and capable committees. The government would not be able to supervise and guide the movement if it did not have appropriately qualified staff. The intensive cooperative education and training is therefore directed at the departmental staff, movement staff, the committees and members of cooperative societies/ unions. The cooperative college undertakes the in-service training for the intermediate level personnel of both the movement and the department. This training is augmented by seminars and specialized courses organized locally and abroad. The commissioner for cooperative development directs and formulates all the cooperative education policies and programmes in the country through the head of education and training division of the department of cooperative development.

At national levels three bodies, viz, the department of cooperative development, the cooperative college and KNFC implement all cooperative education programmes in the field. Increased emphasis on the education of members and training of personnel will therefore continue to be maintained. The education and training are related to the needs of the cooperatives and the community and its goals are geared towards the development of the individual’s talents and capacities to the full. To make it effective it is related to the concrete problems and experiences the cooperative encounter each day with a view to making it a continuous process which helps the co-operators to integrate each new educational concept with what they already know.

Long-term Investments

These can be in the form of shares, treasury bills, Bonds, Unit trusts, Land and Buildings, etc. Money is therefore diverted from the core business of savings and lending to members. Feasibility studies should be carried out before any long term investment is undertaken. The CCD should approve the proposed investments.

According to Weston & Brigham (1982), demand forces relate to the investment opportunities open to the firm, as measured by the stream of revenues that will result from an investment decision. Uncertainty enters the decision because it is impossible to know exactly either the cost of capitals or the stream of revenues that will be derived from a project.

According to Pandey(2005) an efficient allocation of capital is the most important finance function in the modern times. It involves decisions to commit the firm’s funds to the long term assets. Investment decisions are of considerable importance to the firm since they tend to determine its value by influencing its growth, profitability and risks. The long term assets are those that affect the firm’s operations beyond the one year period. The firm’s investment decisions would generally include, expansion, acquisitions, modernization and replacement of the long term assets. Investment decisions require special attention because of the following reasons: they influence the firm’s growth in the long run, they affect the risks of the firm, they involve commitment of large amount of funds, they are irreversible, or reversible at substantial loss and they are among the most difficult decisions to make.

According to Muchemi(2005), non profitable investments should be discouraged because, despite the enormous amount of resources input in such projects, returns are almost nil,, hence reducing the capital base where interest is drawn from.

According to Mwaura(2005), the annual delegates meetings and the ministry of cooperatives are to blame for investment activities undertaken by SACCOS because they are the ones who are suppose to approve the same investment.

Cooperative Management Committees are notorious for diverting members’ funds into investments of dubious value. The law hence needs to be amended to strengthen the minister’s regulatory hand. It should clearly prohibit investments that are not related to the core objective of the society. (KUSCCO 2003)

Nature of business/check off system

SACCO societies usually operate through a common bond. This means that members must be working under the same employer. It is possible with a definite arrangement for, say, an irrevocable banker’s order, that people who have no common bond may be allowed to form one.

According to Ouma (1990) Savings and Credit Cooperatives are sometimes referred to as SACCO societies. These enable members to have facilities through which they are able to make regular savings from their salaries or some other sources of income. The system usually referred to as check-off system, enables members savings or loan repayments to be deducted by the employer at source. It is more or less a “forced” saving. However it enables members to form the saving habit from which loan could be obtained.

Masaku traders SACCO does not have a common bond because individual members agree to contribute a certain amount towards shares. Whenever a loan is given, the concerned loanee enters into an agreement with the society on the modalities of the loan repayments, including use of guarantors and collateral.

According to Sambu (2006), non-remittance or delayed remittance of cooperative dues has led to inconveniences and loss of income by societies. By October 2005 he noted that over Kshs. 4 billion was being held by employers. However the ne

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